In China, the supply of skilled, seasoned employees can't keep pace with the country's growth rate, making it hard on multinationals to find and keep qualified leaders.

By Mark McGraw

Saturday, April 1, 2006

Over the years, many major U.S.-based companies have expanded into China, buoyed by the prospects of tapping into a market with more than 1 billion potential consumers.

Any company branching into a different part of the world must overcome cultural differences that affect the way business is done. In China, many firms have found a weighty challenge: managing employees who've been long submerged in a business culture that mirrored a rigidly hierarchical communist society.

Older generations of workers have spent the majorities of their adult lives working for the same state-run companies; relying on their employers to provide housing, food and other necessities.

Working in such a closely controlled environment calls for, or perhaps instills, a mind-set in which employees are more comfortable adhering to strict procedures than thinking creatively to solve problems. Traditionally, experts say, many Chinese employees haven't naturally demonstrated, for example, a knack for leadership or the initiative to act independently. The lack of familiarity with Western business practices, combined with a shortage of business degrees and English-language skills among these workers, caused many expatriate managers sent there to struggle mightily to adapt to a much different business culture.

But more recently, as China has embraced its own version of free enterprise, that culture has changed somewhat, and has presented still newer challenges. Millions of Chinese workers are now entering the workforce with different attitudes and career expectations, and are "very aggressive about getting ahead," says Rich Wellins, senior vice president of Pittsburgh-based Development Dimensions International Inc.

They're now willing to regularly switch jobs in search of the training and development opportunities, salaries and work/life balances they seek -- rewards and freedoms that eluded past generations.

Indeed, according to a survey of 351 international companies, conducted by Lincolnshire, Ill.-based Hewitt Associates Inc., average turnover rates for foreign businesses across China rose from 8 percent in 2001 to 14 percent in 2005.

What's unique and perhaps troubling for these newer ranks is that, while the motivation to succeed -- and stay on the move -- is abundantly present among younger generations in China, Wellins says, the degree of experience and knowledge they've acquired hasn't quite caught up to their levels of ambition.

Fairfield, Conn.-based General Electric Co. has done business in China for 100 years, according to Heather Wang, human resource director for GE Asia Pacific. In recent years, GE has begun to see younger workers who are, compared to their predecessors, more mobile workers.

While it is not uncommon to see job changes "every one or two years," she says, such frequent movement hampers their ability to develop within any one position or organization. Wang also notes a tendency among companies, given China's rapid growth, to "buy talents for a quick fit."

While GE aims to develop technical and leadership skills in its people over the long haul, "we find a lack of patience, as people tend to be lured by fancy titles from other companies while ignoring the need to develop solid expertise," she says.

Meanwhile, economic, societal and cultural factors have helped create a shortage of talent at the professional and, especially, management levels within China, a shortage much exacerbated by the higher turnover. Among firms with locations in Shanghai, for example, where turnover increased from 11 percent in 2004 to nearly 15 percent last year, the most serious shortages were reported in the "professional" and "supervisor/ senior professional" categories, according to the Hewitt study.

Wei Zheng, Beijing office leader for New York-based Mercer Human Resource Consulting, notes that, with a population of about 1.3 billion, China has a deep pool of unskilled labor. But, up through the ranks, the absence of talent becomes more evident, and is most glaring at the managerial level, where skilled, seasoned leaders "are tops in terms of scarcity," he says.

The quandary GE finds itself in has become a common one for many multinationals competing in China. In the midst of an economic boom, opportunities for business growth are plentiful. A new breed of workers is eager to rise to the occasion, but lack the experience and know-how to fill the most critical roles. Faced with such a shortage, how does an organization find and further develop the talented people necessary to support growth?

Contributing Factors

Studies show the Chinese economy is growing at a steady rate -- some citing rates of 7 percent; others going as high as 12 percent -- and is emerging as a major competitor in the global economic spectrum. China's admission to the World Trade Organization in 2001, which reduced tariffs on Chinese products, portends an even brighter future. In a recent survey of more than 900 executives around the world, conducted by New York-based Accenture, 98 percent of executives in China predicted growth for their respective industries in 2006.

For companies looking for a spot on the global stage, says Ronnie Tan, vice president and managing director of Asian operations for DDI, a formidable presence in China is vital. "If you're not playing in China," he says, "there's something wrong."

Nevertheless, the demand for jobs created by China's continuing economic growth exceeds the supply of skilled employees the country is producing.

Developing countries often experience growing pains. China's history, however, leaves the country at a unique disadvantage, and has contributed greatly to its current talent shortage, experts say.

The political instability and constant policy shifts that characterized Mao Zedong's Cultural Revolution of the 1960s and '70s produced slower economic growth and brought education "to a grinding halt," says Wellins. The tumult of that period produced a generation of inadequately educated individuals, he says, and dealt a blow still felt by the nation's educational system.

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Rooted in China's Confucian heritage, that system is one that emphasizes "rote" learning, and employs teaching methods "steeped in theory rather than practice and application," he says. The result is graduates who may possess superior technical and English-language skills, but will take longer to acquire the business acumen needed to assume positions of leadership than their peers in other developed countries.

In addition, M.B.A. programs, which have surfaced in China only within the last five years or so, are still relatively few in number, and are turning out graduates "not up to the bar that multinationals demand" in terms of managerial ability--for many of the same reasons, Zheng says.

Another factor heating up the battle for talent among international companies in China, says Tan, is that competition isn't just coming from other multinationals. As local firms have grown and state-run companies have become privatized, he says, there has been a push among those organizations "to bring mainland Chinese [workers] back to mainland Chinese companies."

In light of continuing economic progress, local companies, Zheng says, are "now able to afford to pay comparable wages to top talent," and can offer the same salaries, benefits and development opportunities as their multinational competitors.

Countrywide, companies in China are paying workers 8 percent more than last year, and the average budget for salary increases ranged from 6.6 percent to nearly 9 percent in 2005, according to Hewitt's research.

Nurturing Leaders

Increasing salaries or offering signing bonuses, as some organizations in China do, Zheng says, are certainly ways to persuade employees to stay and grow with the firm. But, some companies have taken a different tack: offering continuing, long-term development opportunities as opposed to cash incentives.

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Money is a motivating factor for employees everywhere, but workers in China, despite their newfound eagerness to move on, have shown an increasing desire to develop their skills as well, Zheng says. Nevertheless, according to Mercer's recent What's Working in China survey, only 40 percent of respondents said they believe their employers provide them with sufficient training and development opportunities.

From 2001 to 2005, Wang says, GE has seen revenue in China grow from $1 billion to $5 billion. Despite its success there, however, the company still sees "a significant imbalance of supply and demand for talent" in China, Wang says, compared to the United States and other developed markets. For GE, much like other companies in China, employee development is a necessity, she says.

An epicenter for encouraging such development within GE, Wang says, is its China Learning Center in PuDong, Shanghai. Under the direction of GE's chief learning officer, the center offers classroom facilities for up to 178 people as well as four classrooms designed for groups of up to 60 with 10 smaller training rooms available for "closer interaction and teamwork."

GE also offers different leadership-development programs for entry-level, middle and senior-level managers, and finds tasks for top performers that "stretch" their abilities, Wang says. Those projects may include expatriate assignments -- but only after carefully considering what duties and regions they are best-suited for.

Schaumburg, Ill.-based Motorola Inc., which opened an office in Beijing in 1987 and a Tianjin manufacturing plant in 1992, is also promoting a developmental and learning environment for its employees and potential leaders in China.

In the early '90s, the company established the Motorola University Program in Beijing to provide its Chinese employees with business school training.

Part of the curriculum is the China Accelerated Management Program, which includes classroom work, mentoring at the hands of expatriate coaches and shadowing opportunities.

Motorola University also offers programs for other companies in Asia, including its Business Development Institute, a tailored program focused on enhancing the ability to make sound financial decisions and focus on business issues; and the Leadership Effectiveness Accelerated Development program, designed to prepare first-level managers for higher managerial positions and help them master the skills necessary to function as new managers.

Looking Ahead

While some companies have taken definitive steps to develop their workforces for long-term success in China, others may have been "caught off-guard" by the current talent shortage, Wellins says.

In Zheng's estimation, the surprise element is not so surprising when you consider the country's industrial progression. The business landscape, he says, has become more complex in the last 15 to 20 years -- the period in which most major U.S. companies have set up shop in China. Initially, multinationals sought -- and found -- large numbers of people who were good at production and lower-level manufacturing jobs.

Today, multinational firms not only want to find a place to produce a cheap product, Zheng says, but want to find a market for their products and services in China or neighboring countries. Doing so requires finding managers who can handle many different types of customers, suppliers and employees; a difficult task in China, he says, given the lack of available leaders with an understanding of both the culture and the market.

And while the talent deficiency can be felt at all levels across most major industries in China, the dearth of leaders the country is currently producing is compounding the turnover problem, Wellins says.

One reason employees are headed for the door, he says, is that many leadership positions are, primarily out of necessity, being filled with managers who lack the requisite experience leading others.

"That creates less engagement among employees, and that problem is going to get worse," Wellins says, citing China's level of employee engagement as among the lowest globally.

"A lot of retention depends on leadership readiness," he says. "People don't leave a job, they leave a leader."